Respondent generally denied the allegations, asserted various affirmative defenses, and sought the expungement of this matter from the individual advisor's Central Registration Depository record.

In March 2012, the parties resolved the matter and, thereafter, the FINRA Arbitration Panel heard the advisor's request for expungement, which was not opposed by the Claimant (who did not appear at the expungement hearing.) Pointedly, Claimant had acknowledged in the settlement agreement that the advisor "has a valid basis for seeking to remove this matter from his record..."

In recommending expungement, the FINRA Arbitration Panel noted the following:

Claimant was not a naive investor but in fact was very active and highly involved in all aspects, including extensive internet day trading from his home, independent research, study for his own securities licenses, and numerous phone and in-person conversations with [the advisor].

Claimant grossly misled Respondent, among others, with the extent of his net worth. Respondent had every reason to believe that Claimant's accounts represented less than 5% of his assets and Claimant demonstrated repeatedly the life style to support this conclusion.

Claimant's assertions about conservative investment objectives and signing blank forms are not supported by the documentary evidence or verbal testimony.

Bill Singer's Comment

No, not an earth-shattering case or one involving particularly unique issues. It seems to be a fairly common garden variety customer dispute. What does make this worth reporting about is the FINRA Arbitration Panel's slap in the Claimant's face and it's decision to recommend the expungement of the non-party broker's record.

Many brokerage firms and registered persons regularly find themselves named in public customer arbitrations. Frequently -- no, not always and probably not in the majority of cases either -- there's more than bit of fancy and truth-stretching involved in making the customer's case. If I were an employee of Wells Fargo, Citigroup, Merrill Lynch, JP Morgan, Morgan Stanley, UBS, or any major firm, I'd demand a zealous defense of my good name and a demand for expungement of my record. Similarly, I'd also like to see a more frequent resort to counterclaims against abusive customer complaints.

Without question the advisor was victimized here by having his name dragged through an arbitration in which he was not named as a Respondent and, as such, denied a meaningful opportunity to defend himself. The Panel's dismissive commentary about the Claimant should serve to restore this broker's good name and reputation.

Of course, on the other side of this coin, the public customer's Bar will argue that where there's smoke there's often fire. Such a point would not be well made in this case, particularly in light of the Panel's comment. However, in general, the Claimants' bar would be correct in urging us to not be too quick to close our eyes to the years of customer abuse and disservice that prompted the current rash of lawsuits against many industry brokerage firms. And when it comes to pointing a finger about parties in arbitration who stretch the truth to serve their needs, the industry is a skilled practitioner. Moreover, let also not forget the toxic stew of exotic securities cooked up by folks looking to dump product on unsuspecting investors. This is a bed that Wall Street made. Even if a given individual broker's conduct in servicing a customer is beyond reproach, that doesn't mean the the products that were sold to the client were ultimately suitable or free of taint (consider the Auction Rate Securities or collateralized debt cases as an example).

UPDATE: For my view on the difficulties faced by unnamed stockbrokers in FINRA customer arbitrations, see these "Street Sweeper" columns: